With the Labour party’s leadership election over, the people in charge have affirmed their control. That should, one hopes, mean that they now have no excuse not to develop a solid, sensible policy platform to deal with Britain’s challenges. In that respect, the shadow chancellor’s appearance
at the Labour party conference on Monday is of particular interest.
The text of John McDonnell’s speech
is padded with fluff to make the conference-goers feel good. And Labour, just like the government, is flailing in making its mind up about what relationship it wants the UK to have with the EU after Brexit. But among the concrete domestic policy proposals McDonnell did make, there were several that made good sense. Belying the image some try to paint of a zany leftwing radical, McDonnell is offering policies deserving of a serious hearing in Westminster and among voters.
First, on tax avoidance, there can be little doubt that two of McDonnell's proposals are highly attractive. More resources for the tax authorities would easily pay for themselves. And forcing greater transparency on British dependencies and territories is a necessary and desirable step
towards taxation that is both efficient and fair.
Second, McDonnell promises a £250bn public investment effort. It is right to worry that £250bn ofstate-led investment may find its way into white elephants. But that’s a reason to scrutinise how Labour would make investment choices, not the goal of investing more. To keep the figure in perspective, note that it amounts to about 13 per cent of Britain’s current annual economic output. If spread over a five-year period, it’s not the sort of borrowing that would threaten the government’s creditworthiness, even if it was all wasted on unproductive investments. And since 2009, absolute gross fixed capital formation has been running a good £50bn annually below the pre-crisis trend, so a £250bn boost could be seen as barely even making up lost ground. In this area it is no sin to be ambitious.
Third was the big-ticket number of the speech: a minimum wage of £10 an hour by 2020. This has attracted the predictable jeers from those who think wage floors are always job-killers (Kamal Ahmed has a more sober guide to the debate
). But of course McDonnell is only doubling down on the policy set out by George Osborne
last year. So this should not be seen as a left-right issue, but rather a divide between those who do and don’t think wage floors can spur higher productivity in the economy to an extent that will make the higher level financially viable. And note that McDonnell is emphasising measures to make less unequal the pre-tax earnings distribution in the economy — what wonks call “predistribution” — over measures to achieve more equal post-tax outcomes through redistribution. This is more of a sheep in wolf’s clothing than the opposite.
There is no doubt that McDonnell struck an unabashedly interventionist tone. But whenever he got specific, he more often than not aimed at the real shortcomings of Britain’s mediocre economy, such as low investment rates and poor productivity. (These are well described in Simon Tilford's recent lament on the British economic model
, which, he fears, Brexit will turn into “the poor man of Europe”.)
This may explain the reactions to the speech from business groups such as the British Chambers of Commerce
and the CBI
, both of which mixed concerns about McDonnell’s aggressive rhetoric against private business with compliments for some of the specifics. At the core of it all is uncertainty about what McDonnell’s ardour for an interventionist state really means — and whether he is content to shape the deep structures of the economy or yearns to micromanage business decisions at every level.
McDonnell may do well to spend some time with the concluding chapter of Keynes’sGeneral Theory
, which he can conveniently find on the website of marxists.org
. There Keynes explains why his view that the state should manage society’s capital investments does not entail the full trappings of a planned economy. On the contrary, Keynes writes, getting investment right reduces the need for planning elsewhere.A little more Keynes and a little less Marx could take the new incarnation of the Labour party a long way. Other readablesNumbers news
- There is a glass ceiling in the income distribution: new research finds that women are badly under-represented in the top 10, 1 and 0.1 per cent of incomes — and the situation is worse in Norway, Denmark and the UK than in the other countries studied.
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